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ISA – The UK IRA Equivalent

The UK and the US offer very similar kinds of financial services products but being labeled differently can make it difficult to ascertain how they correspond to each other.


In the UK, one of the most popular tax-efficient savings products is ISA. This is available via a number of different channels including banks and comparison sites such as moneysupermarket.com and can include cash, stocks, and shares or a combination of both.

There is no tax relief on the money invested but when the funds are withdrawn they are exempt from both capital gains tax and income tax, which can offer a substantial incentive to use the scheme.

However, so that the tax people are not robbed of all of their money, there is a yearly limit on how much can be invested into all ISAs held and this allowance increases on an annual basis in line with inflation.

In the US, the closest available product is a Roth IRA, named after the senator that sponsored the original legislation, William Roth. The scheme is designed as a type of retirement plan but in a similar way to the ISA, it provides its taxation gains when the money is to be drawn down, not when it is paid in.

One of the Roth IRA’s principal advantages is its flexibility and depending on the provider, the money can be invested into one of many different types of assets including derivatives or even real estate.

Just like an ISA in the UK, a Roth IRA has a cap on how much money can be invested every year to ensure funds are not being deposited simply as a tax scam.

Whilst the two products are very similar in a number of ways, there are some key differences that set them apart.

An ISA is a vessel for savings and investments and whilst it can certainly be used to accumulate funds for retirement, it is not solely for that purpose. This means that investors are free to take their cash before they retire with no restriction on how they spend it.

A Roth IRA, despite its flexibility, is still a retirement plan and whilst it allows a small number of withdrawals, individuals cannot access all of their cash penalty-free until they retire.

Unlike an ISA, a Roth IRA is not available to everyone. According to US laws, once an individual reaches a certain level of earnings, they are no longer permitted to contribute.

However, the one advantage that a Roth IRA does hold over an ISA is in the event of the holder’s death.

Should an individual die whilst holding money in an ISA, the tax-protective wrapper is stripped and the money becomes liable to Inheritance Tax. In the US, no tax is payable upon death on funds held in a Roth IRA because it is deemed to have already been taxed.

Despite the similarities between the two products and the Roth IRA’s clear advantage for estate planning purposes, the increased flexibility on an ISA plus the larger allowable contributions means that on this occasion, Brits get the slightly better deal over their Atlantic cousins.

Inheritance Tax Planning: Checkmate with the Taxman

Have you ever stopped to consider the numerous assets you have accumulated over your lifetime? Your home, savings, pensions, investments, businesses, and belongings all begin to mount up to a large financial value. Yet many are under the false idea that these assets – those which you have worked so hard for – will be rightly passed on to your family once you are no longer around.

tax job
tax planning

In fact, your possessions will be legally pocketed by the tax man unless you have a rigid inheritance tax plan in place. Currently, in the UK, the 2011/2012 inheritance tax (IHT) threshold is £325,000, meaning if your estate is worth more than this amount the state is legally entitled to 40%.

But there are plenty of legitimate ways of playing the taxman at his own game. Make sure your assets are passed on exactly how you wish, with as little as possible going in the taxman’s pocket by devising an inheritance tax plan.

Your Inheritance Tax Planning Checklist

Make a will – One out of 10 people over the age of 65 dies without making a will, called dying ‘intestate’. If you pass without making a will your estate will be legally divided up amongst your next of kin according to a priority known as the ‘rules of intestacy’.

Unfortunately, it does not recognise partners who are are not married meaning they will receive nothing of your estate. Making a will guard against this giving you and your loved ones peace of mind.

Weigh up your pension options

Those of a certain age will have already considered their best pension options. Does your pension give you an option for a survivor pension scheme if you were to pass away? If you’re about to retire also research your annuities that available to you; some joint annuities will provide your partner with a lump sum or a regular income if you are to pass away during your contracted term.

Consider setting up a trust

Passing on an estate can often involve unintentionally passing on financial and stressful burdens, particularly to younger members of the family who may not be able to manage their own affairs.

A trust is a legally binding way of ensuring that selected ‘trustees’ can manage the asset on someone else’s behalf; a parent perhaps, until the beneficiary is of a suitable age. Some trusts can negotiate hefty inheritance taxes but they are expensive and complicated to set up – often best done with the help of a solicitor or an independent financial advisor.

Give gifts

If you believe your estate to be worth more than the £325,000 threshold then there are inheritance tax exemptions in place in the form of giving gifts providing they are given more than seven years before you die, known as ‘Potentially Exempt Transfers’ (PETs).

HMRC states that £3,000 can be given away annually either to a spouse, charity or national institution. Exempt gifts can also be given for special occasions such as a wedding whereby parents can each give cash or gifts worth £5,000, grandparents up to £2,500 and anyone else up to £1,000.

Working out an inheritance tax plan can seem like a headache and IHT laws can be a tricky business, particularly if you have a large estate or gifted numerous amounts to your relatives in recent years.

For more complicated tax planning and the financial options best suited to your unique circumstances, it may be useful to seek independent financial advice from a specialist in inheritance tax planning.

What To Do If You Can’t Pay Your Council Tax?

If you find yourself in the unfortunate position of not being able to pay your council tax, the worst thing you can do is ignore the problem and hope it will go away. The best thing to do is tell your local council that you are having difficulties and find out what the options are.

There are a number of things that the council can do, they may even be able to reduce your Council Tax bill. It is possible that you may qualifiedly for a Council Tax Discount, the best thing to do is get in contact and find out.

The council may reduce your council tax and offer you a one-off payment for the bill. This is not commonplace, the council will only offer this in extreme cases of hardship, for example, if you can’t pay your rent or bills. It is possible that your council may allow you to spread your council tax payments over a longer period of time, making it more manageable for you.

What happens if you don’t pay your Council Tax?

When you miss a payment, the first thing that will happen is you will receive a reminder. This will give you 7 days to bring your council tax payments up to date, if you fail to do this within the time period you will receive a second reminder.

If, after the second reminder you fall behind with your payments the council may ask you to pay your outstanding balance in full for the rest of the year. If you are not able to pay the balance, it is most likely that the council will start legal proceedings to recover the outstanding amount.

What next?

If you have failed to come to an arrangement with the council and things have got serious, your council can ask the Magistrates Court for a ‘Liability Order’. What this means, is that the Court will demand that you pay the amount you owe in full including costs.  It is your right to attend the court hearing and offer evidence which shows why you are not liable for the amount in question.

If you fail to attend court, it may be a good idea to speak to the council or your local Citizens Advice Bureau. The reason for this is that the council may try and come to an arrangement with you for payment, however, they are not able to do this unless you make contact with them.

What happens if you ignore a Liability Order?

There are a number of things that can happen should you decide to ignore a Liability Order. It is possible that your council may take enforcement action against you in order to recover the debt. If you are working, it is most likely that deductions from your wages will be made.

If you are on benefits, they may be cut or reduced in order to recover the outstanding amount. In extreme cases, bailiffs can be used to recover possessions to the value of the outstanding amount.

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